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Goldman Sachs: US faces fewer inflation issues
Economy
According to Goldman Sachs economist Megan Peters, the US actually faces fewer persistent inflation problems than the rest of the world, despite headline data suggesting otherwise.
Core inflation is "close to target in most countries but remains notably higher in the US, particularly in PCE measures," Peters noted. At first glance, this makes the US a "global outlier where a tangible inflation problem persists." However, a more detailed analysis of the composition of inflation baskets paints a different picture.
To analyze these discrepancies, Goldman broke down core inflation into three components: core goods, services excluding housing, and housing inflation. Peters found that inflation has returned to long-term trends in both emerging markets and developed economies outside the US, whereas in the US itself, it remains elevated—roughly 3 percentage points above the pre-pandemic trend in PCE terms.
The economist attributed the excess inflation in US goods to two temporary, country-specific factors: tariffs and the "distorting impact of AI." Peters estimates that tariffs add 2.4 percentage points to annual core PCE goods inflation—an effect she expects to largely dissipate in the second half of next year.
Separately, rising memory prices driven by AI development are noted to add about 1 percentage point to core goods inflation via the "software and accessories" category. Peters expects this distortion to ease in 2027 as price pressures in the memory market stabilize and the US Bureau of Economic Analysis adjusts its weighting methodology.
Meanwhile, shifting trade flows from China are helping to lower goods prices in other countries. According to Peters' estimates, the rise in imports from China lowered goods prices by an average of 0.8% in developed economies outside the US and by 0.6% in major emerging markets.
Regarding services, the economist identified elevated inflation in the non-housing services sector across most economies, particularly in US PCE data. However, after adjusting for methodological differences in measuring healthcare and financial services, she noted that "underlying services inflation in the US is actually lower than in other major developed economies." Growth in unit labor costs also appears more subdued in the US compared to other nations—a trend that, according to Peters, "points to higher risks of persistent inflationary pressure outside the US."
At the same time, rent inflation has fully normalized in both the US and emerging markets but remains elevated in other developed economies—especially where the reduction in immigration flows was less pronounced, Peters noted.
In conclusion, she stated that global inflationary overheating is largely driven by the services sector, which tends to be more sluggish, whereas a significant portion of the overheating in the US is linked to goods inflation, which is expected to subside. "Our findings suggest that the US faces fewer inflation challenges than other countries, even though current headline figures might imply otherwise," Peters wrote.